Higher wages come at a cost

By Frank Cho
Advertiser Staff Writer

Thousands of Hawai'i's lowest-paid workers rang in the new year with a nearly 9 percent rise in the minimum wage — only the state's second increase in 10 years.

Doug Sanders, managing partner of Buca di Beppo, will have to pay some of his employees more because of a state law that has raised the minimum wage to $6.25. The hike is expected to affect 47,000 workers. Deborah Booker • The Honolulu Advertiser

But while it's good news for many low-income workers, businesses warn that consumers will bear the brunt of the $48 million annual cost of the pay increases through higher prices at the cash register. They say it also could cost jobs as many companies continue to struggle to keep expenses under control because of the state's slow economy.

"This is going to create a situation where hours are going to have to be cut and benefits for some employees may be lost because we still have to meet our own budgets," said Doug Sanders, managing partner of Buca di Beppo, an Italian restaurant in the Ward Entertainment Centre.

Buca di Beppo has 120 employees and 75 earn the $6.25-per-hour minimum wage, Sanders said. But because of increasing cost of labor, he said, the company will have to ask workers to pick up some of the cost of their healthcare insurance that it once provided free of charge.

"The minimum wage increase is putting jobs in jeopardy and forcing us to cut back in order to meet our costs," Sanders said.

But that may not be true, according to Bill Puette, director of the Center for Labor Education and Research at the University of Hawai'i-West O'ahu

"Those arguments are the classic arguments you've heard over and over and over again by employers," Puette said. He said there have been several contradictory studies on whether raising the minimum wage hurts the economy, but none has been conclusive.

Puette said higher minimum wages could spur increased spending by low-income households and benefit the economy.

"Because it doesn't really matter whose hands the money is in as long it is being moved around as opposed to just banking it," Puette said.

Passed by the Legislature two years ago and signed into law by then-Gov. Ben Cayetano, the state raised the minimum hourly wage 50 cents to $5.75 in its initial phase last year — the first increase to the minimum wage since 1993. The second and final phase of the law took effect this week, raising the wage another 50 cents to $6.25. No further increases are planned.

Despite the strong opposition from small businesses, Cayetano declined to postpone the law's implementation last year. Workers, unions and social service advocates argued that the pay increase will help the most needy.

The most recent increase gives Hawai'i workers the sixth-highest minimum wage in the nation, behind Alaska at $7.15 an hour; Washington, $7.01; Oregon, $6.90; California, $6.75; and Massachusetts, $6.75. The federal minimum wage is $5.15 an hour.

Ah Quon McElrath, a member of the UH Board of Regents who was a social worker with the International Longshore and Warehouse Union, said the cost to most businesses would be negligible because most minimum wage workers do not have retirement plans, paid sick leave, overtime or other benefits many Hawai'i workers enjoy.

"I just don't know what they (employers) are complaining about," McElrath said.

Experts said industries likely to be hardest hit by the increase in Hawai'i are food service, tourism and low-end retail.

"I don't know how this is affecting other industries, but for retail this is a big one," said Carol Pregill, president of the Retail Merchants of Hawaii. "With everything else that has happened, this is going to make things a little more difficult this year."

The problem for many retailers is that value is top of mind for consumers and that will limit how much businesses will be able to increase their prices in 2003 to pay for the pay raises, Pregill said.

"When there is an increase in fixed costs with no increase in revenues coming in, something has to give somewhere either through higher prices to the consumer or lower profits for the business," she said.

Pregill said there also are indirect costs associated with the minimum wage increase such as increased benefit costs and increases for other employees who already make more and need or want to stay ahead of the minimum wage.

Elsa Viernes, who works at the Jack in the Box on the corner of King and Piikoi streets, said some businesses may not be able to afford to give everyone a pay increase and leave longtime employees earning at or near minimum wage levels.

"It is frustrating because you work hard and get a raise. Then they raise the minimum wage and the new hires are getting the same pay as you are," Viernes said.

Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.